PH 2015 inflation settles at 1.4%

MANILA, Philippines – The country's inflation or the rate at which the prices of goods and services rise settled at 1.4% in 2015, the National Economic and Development Authority (NEDA) reported Tuesday, January 5.

The full-year inflation was below the government's target range of 2%-4% for last year.

The generally low inflation environment in 2015 was expected, said Socio-economic Planning Secretary Arsenio M. Balisacan.

"It was largely due to favorable supply-side factors such as relatively lower domestic retail prices of corn, oil, and rice; lower international oil prices; and the contraction in the prices of housing and other utilities,” the Cabinet official said.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the 2015 full-year inflation averaged 1.4% from 4.1% in 2014, and below the central bank target of 2%-4%.
 
“But our forecasts for 2016-2017 show an inflation path consistent with the national government target of 2% to 4%,” Tetangco said.
 
Data from the Philippine Statistics Authority (PSA) showed higher annual rates were registered in the indices of alcoholic beverages and tobacco (4.4%); health (1.9%); transport (2.2%); and recreation and culture (1.1%).
 
Higher charges in electricity rates and upward adjustments in air and ship fares were also observed in many regions.

But upward price movements in food and energy pushed inflation to 1.5% in December 2015 from 1.1% in the previous month, NEDA reported. (READ: December inflation seen to hit 1.5%)

The December 2015 inflation was within the BSP's forecast of 1.1%-1.9% for the month and also aligned with the market’s median forecast of 1.5%.

Core inflation, which excludes selected volatile food and energy prices, increased to 2.1% in December 2015 from 1.8% in the previous month.

“This indicates stable price increases across an extensive range of consumer items,” said Balisacan, who is also the NEDA director-general.

Balisacan said last month's inflation was due to the upbeat demand during the holiday season.

However, inclement weather conditions, primarily Typhoon Nona, also adversely affected agricultural areas, hampering the production, delivery, and transport of products, which in turn pushed up prices.

Data further showed that the annual inflation in the country’s food index alone advanced by 1.8% in December from 1.7% in November.

For December 2015, inflation for the food subgroup accelerated on the back of higher prices of corn, fish, milk, cheese, and eggs, which offset the lower prices in heavily-weighted sub-items such as rice, vegetables, and non-alcoholic beverages.

Meanwhile, the increase in non-food inflation can be attributed to the slower price declines in housing, water, electricity, gas and other fuels, accompanied by faster price adjustments in transport, health, and recreation and culture.

Prices of electricity, gas, and other fuels also went up with higher electricity generation charge, given the low supply of cost-effective hydropower plants. Transmission charges were also higher as ancillary service increased charges in December 2015.

The global oversupply and record stockpile levels of crude oil has been instrumental in the continuous downtrend of international crude oil prices, as reflected in lower domestic petrol prices.

Higher inflation seen

Balisacan however said that for the first months of 2016, the effects of El Niño may lead to higher inflation, particularly for food and power.

El Niño is expected to peak from November 2015 to January 2016, and gradually weaken by February this year.

Balisacan said that guided by the Roadmap for Addressing the Impact of El Niño or RAIN, accurate determination of food import requirements to avoid scarcity in supply is important to keep inflation stable in the coming months.

"This also has significant impact on poverty reduction as the poor spend more than half of their budget on food,” he added.

The still unstable energy situation in Mindanao remains a concern, and Balisacan stressed that ongoing power projects, which are expected to be delivered between November 2015 and March 2016, should not be delayed.

Inflation target

For BSP's part, future decisions of the central bank to adjust the policy rate will remain data dependent, taking into account the confluence of demand and supply factors that it considers in forecasting inflation, Tetangco said.

The Development Budget Coordination Committee (DBCC) has maintained the current inflation target at 2%-4% for 2016 to 2018.

The Monetary Board adjusted its inflation forecasts to 2.4% instead of 2.3% for 2016 and to 3.2% instead of 2.9% for 2017 due to the higher inflation in November, the impact of the weakening pesos against the US dollar, and the increasing price of key commodities due to weather disturbances.

The current low inflation environment could be sustained over the medium term as underlying structural inflation dynamics are favorable, with the improved ability of the domestic economy to accommodate supply shocks, Tetangco said.
 
The Monetary Board has also kept interest rates unchanged for 10 straight policy-setting meetings since October 2014. The overnight lending rate is currently pegged at 4% and the overnight borrowing rate at 6%.

“These still show no strong need to change our stance of policy.Nevertheless we will monitor developments and adjust as needed,” the BSP chief added. (READ: Despite US Fed decision, BSP keeps interest rates unchanged)

Jeff Ng, regional economist for Asia at Standard Chartered Bank, said modest inflation would continue to hold at 2.2% this year
 
“Given that the increase in food prices in November had been typhoon-related, it is unlikely to be persistent. Rice inflation, the main driver of inflation in previous years, remains benign. At the same time, energy inflation is likely to remain low,” Ng said. – Rappler.com

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